If you have an old credit card that you never use, you might be tempted to scrap it. After all, debt is bad right? Well, cancelling your card has some consequences related to your credit score, so you’ll want to consider all of your options first. Here’s what you need to know.
Why you shouldn’t cancel your old credit card
Closing a credit card can negatively affect your credit score, which impacts your ability to qualify for loans at favorable rates. Here’s how closing an old card affects your credit:
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That all said, there are valid reasons why you might cancel an old, unused card:
To avoid a steep annual fee (typically $500 or more for premium cards)You already have other lines of credit that will mitigate the impact to your credit scoreTo extricate yourself from sharing a card with someone else (i.e., divorce)Consider a card downgrade if you have an annual fee
If your card has a fee, Ted Rossman, senior credit card industry analyst at Bankrate.com, recommends calling your lender and asking for a downgrade (you can refer to it as a “product change” when talking to the company). Just be sure to confirm whether your existing card’s credit history will be carried over to the new card.
Use it or lose it
Whether you use a downgraded card or just keep the one you already have, use it at least once every three months, as credit card companies will close inactive accounts. To avoid this, consider using your card for a small recurring purchase, like a Netflix subscription, and setting up your bank account so that it’s automatically paid off every month. Then put the card away somewhere where you’ll forget it, like in a drawer, so that you won’t be tempted to use it.
